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Why Shares of Kemet Corp. Slumped Today

A strong quarterly report wasn't enough to keep the stock afloat.

What happened

Shares of Kemet Corp. (NYSE:KEM) dropped on Thursday despite a positive fiscal fourth-quarter report from the electronics components manufacturer. Kemet handily beat analyst estimates for both revenue and earnings, and the company predicted another strong fiscal year ahead. The stock was down 12% at market close.

So what

Kemet reported fourth-quarter revenue of $318.0 million, up 61% year over year and about $11 million higher than the average analyst estimate. "We finished the fiscal year strong in the March quarter with mix, shipments, and orders staying on pace, and even exceeding the prior quarter in all aspects," said Kemet CEO Per Loof.

Image source: Getty Images.

Non-GAAP earnings per share came in at $0.45, up from $0.14 in the prior-year period and $0.04 higher than analysts were expecting. Strong revenue growth and a 2.6 percentage-point increase in adjusted gross margin were responsible for the surging earnings.

Loof believes fiscal 2019, which started on April 1, will be even stronger than fiscal 2018: "...we believe that we will see another strong year of market demand and performance by the Company with sales growing year over year as additional capacity comes on line over the course of the fiscal year."

Now what

Given the overwhelmingly positive report, why did the stock fall on Thursday? It could be driven by concerns that Kemet's strong performance isn't sustainable. Loof commented on this in the press release, saying, "We continue to believe that this is a trend and not a bubble with the demand for our products remaining robust and our sales into the distribution channel balanced with distributor inventories."

No management is ever going to admit that its solid results aren't sustainable. With shares of Kemet now trading for around 11 times full-year non-GAAP earnings, investors don't appear confident that the company's blockbuster growth will continue.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.